Another report has confirmed what researchers and financial planners have been advising for the past few years – the debt load faced by most Canadians is becoming a huge problem.
The inaugural affordability index, created by BDO Canada, found that almost one-quarter of Canadians, and three in ten Prairie Canadians, feel overwhelmed by their debt and don’t know what to do about it. Prairie residents also have the second highest average non-mortgage debt in the country with $24,143.10 in debt.
That’s a concern for BDO Canada senior vice president Craig Fryuk.
“When you hear somebody reporting they’re overwhelmed by debt, that’s a real indicator that they’re not only struggling and taking on more debt, but they’ve got that emotional feeling of it being too much,” he said.
“When you owe a lot of money and you’re really feeling the stress of being under debt, it just consumers you. You’re spending a good part of your time at work thinking about it. It really starts affecting your health and how you deal with other problems.”
The debt problem means that 50 per cent of those surveyed, and 51 per cent of Prairie residents, are unprepared to handle unexpected costs, while 20 per cent of prairie-dwellers and 31 per cent of Canadians have no retirement savings.
With report after report detailing high levels of personal debt, Fryuk said people have to start taking a good, hard look at their finances.
‘We’ve got a fairly optimistic country. We think things are going to turn around,” he said.
“We just need to focus a little bit more on really changing our mindset to tackle debt and start putting money away for retirement. People are optimistic that things are going to get better, and with low-interest rates taking on more debt and spending more. We really need to get that in check as a nation — start saving money, start aggressively paying down debt. That may come at the sacrifice of some other things. When we look at our needs versus our wants, it may come to the sacrifice of some of those wants.”
While Canadians across several age groups are struggling with debt, 34 per cent of millennials said debt is overwhelming, as did an equal percentage of Canadians with children. Gen Xers who have parents or kids living at home are also struggling, and 58 per cent of people in that age group carry a credit card balance.
Debt levels are leading to people putting off payments or purchases, including credit card debt, buying a car or a home, pursuing a higher education and retiring at the age they thought they would.
According to Fryuk, it isn’t just a low-income problem.
“I call it lifestyle creep,” he said.
‘When you start making more money, you spend more money. People making over a hundred thousand dollars a year still have trouble saving for retirement and saving for major purchases. We all need to take a step back.”
Fryuk, who works as a Licensed Insolvency Trustee (LIT), said he has had clients who are afraid to even open their mail (a LIT is a professional licensed by the federal government to file consumer proposals or bankruptcies on behalf of people). But if they take a look at their budgets, he said, or ask for help, they can usually pay down their debts.
“People just want to hide from this,” he said.
“They don’t want to deal with this. It’s a very natural human response to that kind of stress — almost a survival mechanism. But once we look at it, and look at their budget, where they’re spending their money we can usually come up with a plan for them to pay this off.”